PROPOSING a rights issue with warrants was deemed the less risky move to raise funds for financing JAKS Resources Bhd’s Vietnam independent power producer (IPP) endeavour, while also rewarding shareholders at the same time, according to JAKS CEO Andy Ang.
The rights issue with warrants was proposed on May 22, with the aim of raising a minimum of RM200 mil with a potential maximum of RM289 mil, and will be primarily used to maintain the 75% debt to 25% equity ratio for the group’s Hai Duong power plant project.
The power plant project is a 1200MW IPP, with two units of 600MW each. The first unit, according to Ang, is already producing electricity, but is still in the testing and commissioning phase, thus providing no revenue to the group yet.
“We explored a few financing options and spoke to our financial advisors, and concluded that rights issue equity funding was the best option in the current situation.”
“Equity investments are also difficult for banks to finance, as it is not typical funding,” said Ang to FocusM.
It was also noted that a lot of banks were cautious due to Covid-19, and were quite selective in how they deployed capital and liquidity, according to Ang.
“Borrowings come at a financing cost. Even if the amount can be raised via bank borrowings, we need to take cognisance of the interest cost that could burden the group.”
“We did not want to take that risk, so we went to the equity market instead,” said Ang.
This move also has the effect of rewarding the shareholders that believe in JAKS resources, and wish to invest further, according to Ang.
He also noted that there was also the sweetener of fresh warrants, and that there is certainty in the exercise raising the amount needed, subject to the approval of the authorities.
“We have received approval from Bursa to call for an extraordinary general meeting for shareholder approval of this exercise, and we will hold the EGM before the end of September,” said Ang.
The proposed rights issue is expected to be completed by the fourth quarter of 2020.
At the end of the morning’s trading, JAKS’ shares were last done at a static 76 sen, with 1.36 million shares traded. – Sep 9, 2020
